Credit card customers and other consumers around the country are getting more protection from debt collectors -- both the many scrupulous debt collectors and the few unscrupulous.

For the most part, these protections require debt collectors to provide more proof that they own the debt they are seeking to collect through lawsuits and -- this is becoming an increasingly crucial point -- to show that the statute of limitations on such suits has not expired.
Debtors to collectors: Show proof the debt is really owed

The trend comes at a key point in time, with unemployment remaining at stubbornly high levels, the economic recovery remaining unusually feeble, indebted consumers becoming increasingly desperate and, as a consequence, debt collectors flooding courts with lawsuits in virtually every state.

One study found that nearly 500,000 lawsuits were filed in New York City by 26 debt buyers between January 2006 and July 2008 alone, and experts say that was only the leading edge of a subsequent tsunami of debt collector lawsuits.

"For far too long, courts have been used as an arm of the collections industry," said Jonathan Harris, a staff attorney for the Public Justice Center, a nonprofit legal advocacy group in Baltimore. "These suits lead to garnishment of wages, seizure of assets and liens on homes and cars -- consequences that those already struggling to make ends meet can hardly afford.

"Therefore, it is critical that courts ensure that the correct party is suing the correct consumer on the correct debt," he said. "Hopefully, as a result of this trend, debt collectors will stop flooding the courts with suits that fail to meet basic standards of proof."

Debt collection changes
Elements of the trend include:

A growing number of states, counties and cities that are substantially elevating the barriers that must be hurdled before debt-related lawsuits can be filed or cleared for action.
Proposals to strengthen federal regulations related to such lawsuits and, going further, the sale and purchase of consumer debt.
Legislation pending in Congress that would bar debt collectors from bringing legal action on a debt after the statute of limitations has expired, an issue that often comes into play because -- by definition -- a suit filed on behalf of a debt relates to a debt that is pretty old.

"Consumers must be protected from overzealous debt collectors who are bending the rules to collect," Rep. Steve Cohen, D-Tenn., said when he filed the bill in June. "When the original creditor sells their time-barred debts to new collectors, consumers should be informed of the rules and not be misled. My legislation helps consumers recognize and understand the rules of debt collection during these tough economic times."

Representatives of the debt collection industry emphasize that most debt buyers are legitimate and run scrupulous businesses, though -- as in any industry -- some take shortcuts or seek to take advantage of consumers. In general, these representatives say, the industry supports full disclosure and strict standards for filing lawsuits.

"From our perspective, the availability of complete and accurate consumer account information is the foundation of a fair and effective collection system," said Mark Schiffman, director of public affairs for ACA International, which represents more than 5,000 third-party collection agencies, asset buyers, attorneys, creditors and similar entities around the world.

"Creditors generate vast amounts of consumer information in the origination and maintenance of consumer accounts," he said. "Collectors rely upon the transfer of this information to effectuate collection of the debt once it becomes delinquent. In cases where creditors sell portfolios of consumer accounts to debt buyers, the robust transfer of complete consumer account information is critical to both consumer privacy and effective collections."

Proof of indebtedness disappears
In fact, outstanding debts often are sold and resold multiple times. By the time they reach the hands of the third or fourth collector, who acquires it for pennies on the dollar, the chain of evidence -- showing who owes what -- has vanished.

At the same time, courts are being overburdened by the sheer volume of debt-related lawsuits, many of them filed after the statute of limitations has expired. The statute of limitations time period varies by state, but is somewhere from three to 10 years.

The result: Hundreds of thousands of credit card users and other American consumers are responding to or otherwise carrying the burden of lawsuits that are lacking in evidence or are just flat bogus.

Consumer advocates emphasize that, particularly when it comes to the statute of limitations, knowledge of your rights is absolutely crucial.

Here's why: If the statute has run out, but you are sued anyway, that suit is illegitimate. But, if upon being sued you begin to make payments on that debt, you may inadvertently restart the clock on your debt, setting the entire statute of limitations in motion again.

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